Ain Shams University

Faculty of Engineering
Credit Hours Engineering Program
Senior (MANF)

Industrial Engineering
Spring 2016
Capacity&Aggregate Planning

Question 1
Chapman Pharmaceutical, a large manufacturer of drugs, has an aggregate demand forecast for liquid
cold medicine.
Month
Liters
(1000s)

180

120

75

60

20

15

15

15

30

70

90

150

a. If the firm has a capacity of 80 thousand liters per month, show by means of a graph the sales level,
production level, and inventory level over the next 12 months if the initial inventory is 190,000
liters.
b. What is the minimum level of production necessary to maintain a nonnegative inventory?
c. Develop a plan which includes overtime for which inventory levels are held to at least a 100,000 liter
level each month.

Solution
a-

Month
1
2
3
4
5
6
7
8
9
10
11
12

Sales
180
120
75
60
20
15
15
15
30
70
90
150

Productio
n
80
80
80
80
80
80
80
80
80
80
80
80

Beginning Ending
190
90
90
50
50
55
55
75
75
135
135
200
200
265
330
380
390
380

265
330
380
390
380
310

Capacity Planning/ Aggregate Planning - 1/10

450
400
350
300
250

Sales

Production 200

Production level

150

Ending inventory

100
50
0

Month

b- sales= 840,000 Units ; initial inventory= 190000 Units

sales
initial inventory = 55 unit
Minmuim requirment =

840000190000
= 54.166666 = 55
12
Min level of production = by trail and error = 62 unit
c-

Question 2
The president of Hill Enterprises, Terri Hill, projects the firms aggregate demand requirements over the next 8
months as follows
Period
Demand
1
1400
2
1600
3
1800
4
1800
5
2200
6
2200
Capacity Planning/ Aggregate Planning - 2/10

7
8

1800
1400

Her operations manager is considering a new plan, which begins inJanuary with 200 units on hand.
Stockout cost of lost sales is $100 per unit.
Inventory holding cost is $20 per unit per month.
Ignore any idle time costs.
The plan is called plan A.
Plan A: Vary the workforce level to execute a chase strategy by producing the quantity demanded in
the prior month . The December demand and rate of production are both 1600 units per month.
The cost of hiring additional workers is $5000 per 100 units.
The cost of laying off workers is $7500 per 100 units.

It is required to:
a) Evaluate the plan
b) Develop plan B: Produce at a consumer rate of 1400 units per month, which will meet minimum
demands. Then use subcontracting, which additional units at a premium price of $75 er unit.
Evaluate this plan by computing the costs for January through August
c) ) Develop plan C: Beginning inventory, stockout costs and holding costs as provided. Keep a stable
workforce by maintaining a constant production rate equal to the average requirements and allow
varying inventory levels. Plot the demand with a graph that also shows average requirements.
Conduct your analysis for January through August

Capacity Planning/ Aggregate Planning - 3/10

Capacity Planning/ Aggregate Planning - 4/10

Question 3
Planners for a company are about to prepare the aggregate plan that will cover six periods. They have assembled
the following information:
Period
1
2
3
4
5
6
Total
Forecast 200
200
300
400
500
200
1800
Costs
Output
Regular time = $2 per unit
Overtime
= $3 per unit
Subcontract =$6 per unit
Inventory
=$1 per unit per period on average inventory
Back orders =$5 per unit per period
a) Prepare an aggregate plan and determine its cost knowing the following:
They now want to evaluate a plan that calls for steady rate of regular time output, mainly using
inventory to absorb the uneven demand but allowing some backlog.
They intend to start with zero inventory on hand in the first period.
Assume a level output rate of 300 units per period with regular time (i.e., 1800/ 6=300).
The planned ending inventory is zero.
There are 15 workers.

Capacity Planning/ Aggregate Planning - 5/10

b) Planners have decided to develop an alternative plan. They have learned that one person is about to
retire from the company. Rather than replace him, they would like to stay with the smaller workforce
and use overtime to make up for the lost output.
The reduced regular time output is 280 units per period . The maximum amount of overtime output per
period is 40 units.
Develop a plan and compare it to the previous one in (a)
c) Develop another plan in which you can use temporary workers to fill in during months of high demand.
Suppose that it costs an additional $100 to hire and train a temporary worker, and that a temporary
worker can produce at the rate of 15 units per period (compared wih 20 units per period for regular
workers)

Capacity Planning/ Aggregate Planning - 6/10

Capacity Planning/ Aggregate Planning - 7/10

Solution of c)

Capacity Planning/ Aggregate Planning - 8/10

Dividing the number of units needed (120) by the output rate of 15 per temporary worker, you find that
eight worker periods are needed (e.g. two workers for four months each, four workers for two months
each).
Noting that Periods 4 and 5 have the heaviest demand, try using four temporary workers for two months
each (i.e., Periods 4 and 5). The results are summarized in the following plan:
Period
1
2
3
4
5
6
Total
Forecast
200
200
300
400
500
200
1800
Output
Regular
Overtime
Subcontract
Output-Forecast
Inventory
Beginning
Ending
Average
Backing

280
----80

280
------80

280
----(20)

340
----(60)

340
----(160)

280
----80

1800

0
80
40
0

80
160
120
0

160
140
150
0

140
80
110
0

80
0
40
80

0
0
0
0

Costs
Output
Regular
Overtime
Subcontract
Hire/ Fire
Inventory
Backorders

$560
------$0
$ 40
$0

560
------0
120
0

560
------0
150
0

680
--------400
40
400

680
------400
40
400

560
--------0
0
0

$3600

Total $

600

680

710

1190

1520

560

$5260

460
80

$ 800
$ 460
$ 400

Question 4
A manager is attempting to put together an aggregate plan for the coming year. She has obtained a forecast of
expected demand for the planning horizon. The plan must deal with highly seasonal demand; demand is
relatively high in periods 3 and 4 and again in period 8, as can be seen from the following forecasts:
Period
1
2
3
4
5
6
7
8
9
Total
Forecas 190
230
260
280
210
170
160
260
180
1,940
t
The department now has 20 full-time people, each of whom can produce10 units of output per period at
a cost of $6 per unit. Inventory carrying cost is $5 per unit per period, and backlog cost is $10 per unit
per period. The manager is considering a plan that would involve hiring two people to start working in
period 1, one on a temporary basis who would work only through period 5. This would cost $500 in
addition to unit production costs.
a) What is the rationale for this plan?
b) Determine the total cost of the plan, including production, inventory, and backorder costs.

Capacity Planning/ Aggregate Planning - 9/10

Solution

Capacity Planning/ Aggregate Planning - 10/10